Tuesday, December 18, 2018

Just in case you missed what's going on in France: the status quo in Europe is doomed.

The status quo has a simple fix for every crisis and systemic problem:

1. create currency out of thin air

2. give it to super-wealthy banks, financiers and corporations to boost their wealth and income.

One way these entities increase their wealth and income is to lend this nearly free money to commoners at much higher rates of interest. I borrow from central banks at 1% and lend it to you at 4.5%, 7% or even 19% or more. What's not to like?

If a bank is insolvent, it can borrow money at 1% from central banks. If Joe Blow is insolvent, the only loan he can get is at 23%, if he can get any credit at all.

3. China has a variant fix for every financial crisis: build tens of millions of empty flats only the wealthy can afford as second or third "investment" flats. If the empty flats start dropping in price, government entities start secretly buying flats to support the market.

4. Empty malls, bridges to nowhere and ghost cities are also a standard-issue fix in China. Built it and they will come, until they don't. But who cares, the developers and local governments (i.e. corrupt officials) already pocketed the dough.

You see the problem: making rich people richer doesn't actually fix what's broken, it only makes the problems worse. So why can't we fix what's broken?

It's a question that deserves an answer, and the answer has six parts:

1. Any meaningful systemic reform threatens an entrenched, self-serving interest/elite which has a tremendous incentive to squash, co-opt or water down any reform that threatens their monopoly, benefits, etc.

2. It's far cheaper in cash and political capital to block something than it is to push through a reform that reduces the skims and scams of entrenched, self-serving interests.

3. Entrenched, self-serving elites are disconnected from the real world of the commoners; they live in protective bubbles, from you-can't-fire-me job security to gold-plated healthcare to generous pensions to access to central bank credit lines-- all of which is unavailable to the commoners wearing yellow vests. As a result, their grasp of the real problems is unrealistic, as the real-world experience of the bottom 90% is an abstraction.

4. Entrenched, self-serving elites are protected from the disastrous consequences of their policies and self-serving greed. In Taleb's terminology, they have no skin in the game: policies can be complete failures but nobody's fired, and nobody's pay is cut.

5. The Neofeudal "fix" to all crises, and social and financial problems--enriching the already rich and empowering the already powerful--signals the entrenched elites that the system is working just fine: if it's working great for me and my cronies, so clearly it's working great for everyone.

6. The corporate media and the social media giants are entrenched interests, and so it serves their interests to ceaselessly promote the status quo Neofeudalism as the cat's meow and marginalize dissenters, skeptics and reformers.

Just in case you missed what's going on in France: the status quo in Europe is doomed. The status quo fixes of enriching the already rich as the solution to every problem have gutted the social contract and destabilized the economy. Giving more nearly free money to banks, financiers and corporations is only going to speed the dissolution of the Eurozone and the existing social order.

What's broken? Nothing, from the perspective of those at the top of the wealth-power pyramid:

Sunday, December 16, 2018

Capital garners the gains, and labor's share continues eroding. That's the story of the 21st century.

The middle class, virtually by definition, is not prepared for downward mobility. A systemic, semi-permanent decline in the standard of living isn't part of the implicit social contract that's been internalized by the middle class virtually everywhere:living standards are only supposed to rise. Any decline is temporary.

Downward mobility is the key context in the gilets jaunes "yellow vest" movement in France. Taxes and prices rise inexorably while wages/pensions stagnate. The only possible outcome of this structural asymmetry is a decline in the standard of living.

This structural decline in the standard of living of the middle class is complex.One of the definitive identifying characteristics of the middle class is that is supposed to be largely immune to the insecurity and precariousness that characterize much of the working class.

In other words, this isn't supposed to happen to us. This is especially true in nations with longstanding generous social welfare programs: should the unexpected happen and a household's income declines, the state is supposed to step in and fill the gap with subsidies, unemployment insurance, cash payments, etc. until the household recovers its previous standard of living.

None of that is happening. The erosion of middle class standards of living is not abrupt enough to qualify for social welfare programs; the erosion is gradual, via the higher taxes and living costs the "yellow vests" are highlighting.

State benefits aren't as generous as they're cracked up to be. Lower-income pensioners in France are called sans dente, without teeth, as France's universal healthcare program doesn't provide much in the way of dental care, hence the poor with missing teeth.

The protesters rightly perceive that they are politically invisible: the ruling class, regardless of its ideological flavor, doesn't believe it needs the support of the politically invisible to rule as it sees fit. The ruling class has counted on the cultural elites to marginalize and suppress the politically invisible by dismissing any working-class dissent as racist, fascist, nationalistic and other words expressly intended to push dissent into the political wilderness.

Many commentators have listed the systemic sources of the erosion in standards of living and financial security: the loss of cheap, plentiful oil to fuel "growth" at rates that lift all boats; the financialization of the economy, which favors capital over labor; globalization, which increases corporate profits via labor, social welfare and pollution arbitrage (move production where these costs are the lowest), and the corruption of the political machinery via pay-to-play (favoring the corporations and super-wealthy) and the concentration of financial and political power in the hands of the few at the expense of the many.

Another way to understand this downward mobility is: the elites no longer need a vibrant middle class to hold power and increase their wealth. The real money is in globalized capital flows, access to central bank credit and ownership of debt. The role of the middle class has largely been reduced to being compliant, passive debt-serfs who can borrow money to fill the yawning gap in their standard of living and make the payments.

Since the political machinery serves the oligarchy, there's no real need to pander to the middle class or the working class. Being tossed in with the politically invisible hurts the pride of the middle class, as does being expendable, but as we see in this chart, the top .01% have skimmed the vast majority of whatever wealth and income have been generated over the past decade.

Whatever crumbs fell to the middle class must have been sufficient, as they're still paying their mortgages, student loans, auto loans, etc.

The general decline in living standards tracks the general decline in labor's share of the economy:

Capital garners the gains, and labor's share continues eroding. That's the story of the 21st century.

The basic idea here is the socio-economic-political system is structured such that the only possible output is neofeudalism. In other words, neofeudalism isn't a flaw in the system that can be changed with policy tweaks or electing a new president or PM-- it's the result of the system working as designed.

Neofeudalism is a peculiarly invisible hierarchical structure of power: The New Nobility (or aristocracy if you prefer) wields vast concentrations of political, social and financial power, and does so without the formalized aristocrat-serf relationships and obligations of classic neofeudalism.

We appear to be free but we're powerless to change the power asymmetry between the New Nobility and the commoners. This reality is reified into social relations that are simulacra of actual power, pantomimes acted out in media-theaters to instill the belief that the foundational myths of democracy and social mobility are real rather than misleading shadows.

Neofeudalism is fundamentally a financial-political arrangement, marketed and managed by cultural elites who strive to convince us that we still have some shreds of power. These elites have a variety of tools at their disposal. One has been described by filmmaker Adam Curtis as pantomime: Trump says/does something outrageous, the Democrats cry "impeachment," and so on.

This theater of pantomime serves two purposes: it projects a simulation of functional democracy that makes us believe impeaching one president and getting another one in office will change anything about the neofeudal power structure; it won't.

The theater of pantomime also distracts us from the remarkably stable asymmetry of power in our social-political-financial construct: various ambiguities are blown into "the most important issue of today," a revolving performance in which virtue-signaling has replaced actual action to remedy the vast imbalances of power, and appeals to myths that no longer manifest in the real world (democracy and social mobility) are used to suppress and marginalize the search for new structures that would upend the cozy incest of neofeudalism's financial and political power.

I discuss the structure of neofeudalism in my new book Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic at some length, and one key takeaway is this: $100 million invested in influencing the central state guarantees $1 billion in private-sector profits. Or $10 billion. The point is the return on investment is unbeatable, and so is the security of the gains.

This marriage of state power to create credit and its monopoly on force with private-sector financial power is the core relation of neofeudalism. The only possible output of this structure is a mass of powerless debt-serfs enriching the New Nobility, who are slavishly served by a nomenklatura class of "liberal" technocrats and managers tasked with promoting pantomimes and simulacra as "the real thing."

Despite the ubiquity and sophistication of this marketing and management machinery, the debt-serfs sense the entire system is both false and precarious, two intimately related realities, for fakery is always precarious: the truth about the asymmetries of power might slip out and spread like wildfire.

Wednesday, December 12, 2018

The elites' clever exploitation of politically correct cover stories has enthralled the comatose, uncritical Left, but not those who see their living standards in a free-fall.

A family member who has lived in France for decades summarized the source of the gilets jaunes protests in one sentence: "The government stopped listening to the people 20 years ago. It would be difficult to deny the generalization of this: many if not most governments stopped listening to their people decades ago, preferring instead to listen to financial and political elites and entrenched cultural elites who view commoners with disdain.

Legions of commentators are weighing in on the economic and cultural sources of France's distemper. Many have characterized the protests as working class, broadly speaking, the multitudes who have seen an erosion in the purchasing power of their wages or pensions while France's financial, political and cultural elites have feasted on whatever meager gains the French economy has registered in the past 20 years.

The protesters rightly perceive that they are politically invisible: the ruling class, regardless of its ideological flavor, doesn't believe it needs the support of the I>politically invisible to rule as it sees fit. The ruling class has counted on the cultural elites to marginalize and suppress the politically invisible by dismissing any working-class dissent as racist, fascist, nationalistic and other words expressly intended to push dissent into the political wilderness.

The cultural elites reckoned their ceaseless depiction of working-class dissent as racist-fascist populism would continue marginalizing the commoners, but the worm has turned: the financially, politically and culturally marginalized classes are fed up.

Despite the usual squabbles between factions, the ruling class has long been united behind a simple tool of control: buy complicity with government benefits. Should dissent boil up in a broad-based movement, the solution is buy the protesters off with some new state subsidy or benefit.

This is one of the essential dynamics of Neofeudalism which are:

1. Debt penury and wage-slave loyalty to the New Nobility that owns the debt.

2. The financial-political nobility maximize their skim and justify this exploitation with airy assurances to the politically impotent debt-serfs that this systemic predation magically offers up the best possible outcome for the peasantry.

3. State benefits are used as bribes to buy the complicity and passivity of the wage-slave debt-serfs.

4. The New Nobility offer politically correct cover stories for their exploitation and predation.

Now that this strategy has failed to silence gilets jaunes, France's ruling class realizes the situation is serious. And as we all know, the ruling class everywhere follows this dictum: when it gets serious, you have to lie.

The lies are now continuous, hence the explosion of elite concern over fake news. The spark that lit the fuse of the current protests was a lie, of course; the fuel tax wasn't intended to "save the planet", it was intended to raise revenue so the elites could continue to extract their skim without endangering the economic order.

The elites' clever exploitation of politically correct cover stories has enthralled the comatose, uncritical Left, but not those who see their living standards in a free-fall.

The idea here is the central state sets up a vast, pervasive surveillance system to monitor all its citizens, and assigns a social score to each citizen based on his/her compliance with regulations and social norms as defined by the state.

In Kafka's nightmarish novels, an opaque, impenetrable and impersonalized bureaucracy controls the social and economic structures of everyday life.

China's system is based on a social score, but one's social score has enormous economic consequences: the citizen with a low score can be denied rights to travel, his/her children can be denied access to educational opportunities and so on.

As I noted, there doesn't appear to be a legal process for challenging one's low social score, or much transparency on the various violations and weighting of violations that go into calculating each individual's score.

I've often written about the difference between force and power: as per Edward Luttwak, force (coercion) is costly and clumsy, while power works via persuasion, grudging or otherwise.

China is attempting to create a system that is extremely coercive (a low score generates severe punishments) but also seeks to internalize the social scoring system: no authority figure is required to force individuals to comply; each individual internalizes the rules and modifies their own behavior accordingly.

This aligns with China's historic reliance on internalized social norms to control its vast populace. Even in the Song Dynasty (960 AD to 1279 AD), the central state relied on the internalized social norms of Confucian values to "order society" with minimal coercion. A judiciary system handled gross violations of the legal rules and petitions for redress, but in effect the state ruled through the family and community hierarchies created by Confucianism.

I bring up Kierkegaard in this context as one of the first "modern" philosophers to question state control of the church and religion (the Western analog of Confucianism) and propose the primacy of the individual's relationship with God and inner moral compass -- what he termed the knight of hidden inwardness.

The primacy of the individual is the core of Modernism, as each individual discovers the mysteries of God in their own way and time, and creates their own identity via their own choices and commitments. This is the essence of Existentialism and Modernism, which rejects the ultimate authority of centrally controlled norms.

In art and literature, Modernism frees individuals to work outside of established genres and flout traditional rules governing art and literature, and indeed, the creative process.

We seem to be heading into a confrontation between the two forces of Modernism: the primacy of the individual versus the increasing technological and economic might of the central state. This conflict is largely beneath the surface of everyday life and the "news," but it may play a key role in the coming Great Crisis that's due by 2025.

As for those who claim to have refuted or even debunked (heh) concerns about the teleology of China's social control system, let's paraphrase Zhou Enlai: it's too early to tell.

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